Gralise IP Solid
By Jason Napodano, CFA
On January 23, 2012,
Depomed, Inc. (
, $6.17 / share)
announced that it has received a Paragraph IV certification notice
from Actavis Elizabeth LLC advising Depomed that Actavis has filed
an Abbreviated New Drug Application (ANDA) with the U.S. FDA
seeking approval to market a generic version of Gralise
(gabapentin), 300 mg and 600 mg tablets. Actavis' certification
notice alleges that Depomed's six US patents for Gralise listed in
the FDA Orange Book, the latest of which expires in 2024, will not
be infringed by Actavis' proposed product, or are invalid and/or
Depomed intends to vigorously enforce its intellectual property (
). We expect that Depomed will file a patent infringement lawsuit
in the next 45 days against Actavis seeking to stay the FDA from
approving Actavis' ANDA for 30 months or until a district court
renders a decision that is adverse to Depomed, whichever is
Depomed currently has six Orange Book listed patents for Gralise
and more than 10 patent applications in prosecution. Also, we
remind investors that Gralise has received Orphan Drug designation,
and management continues to pursue Orphan Drug exclusivity for the
product. This would provide 7 years of exclusivity for Gralise once
granted by the FDA.
We believe this is simply Actavis Elizabeth LLC attempting to be
the "first-to-file" for approval of generic Gralise. Benefits of
being first-to-file include 180 days or exclusivity upon generic
launch and the ability to settle or sub-license those rights in the
future. We do not believe Actavis Elizabeth LLC will be successful
in bringing a generic Gralise product to the market before 2020.
Depomed has successful defended its IP in the past.
* In December 2007, Apotex, Inc. filed the
Canadian equivalent of a U.S. ANDA seeking approval for a generic
version of 500mg Glumetza in Canada. Depomed file an infringement
complaint against Apotex, Inc. and to date there has been no
generic 500mg Glumetza available in Canada.
* In November 2009, Depomed filed a lawsuit
against Lupin Pharmaceuticals for infringement of four U.S. patents
on Glumetza. Lupin was attempting to bring a generic 500mg and
1000mg Glumetza product to the market in the U.S. through an ANDA.
The 30-month stay is set to expire in May 2012, but we do not
believe Lupin will launch. A Markman hearing was held in January
2011, which resulted in all 10 claim terms at issue in the lawsuit
construed in Depomed's favor. A bench trial is currently scheduled
for August 2012. We think Lupin will settle before the trial ends.
* In June, 2011, Depomed filed a lawsuit against
Sun Pharma for infringement of five U.S. patents for Glumetza in
response to an ANDA filed by Sun. Sun was attempting to bring a
500mg and 1000mg Glumetza product to the market in the U.S. The
lawsuit will stay an FDA decision on Sun's application until
Unfortunately, this is just part of doing business for a
drug-delivery company like Depomed. Generic companies will
challenge patents, even when they have little chance to succeed
(see Lupin above). We find it comforting that large pharmaceutical
companies understand and respect Depomed's IP. In March 2011,
Depomed entered into a license agreement with Boehringer Ingelheim
that netted $10 million upfront. In August 2010, a Depomed entered
into a license agreement with Janssen that netted $5 million
upfront and $5 million in formulation work. In July 2009, Depomed
entered into a license agreement with Merck that netted $10 million
upfront. These deals centered around Depomed's Acform drug delivery
Merck licensed the rights to the technology to create a once-daily
Janumet-XR (Januvia + extended release metformin) product we
believe has peak sales over $1 billion (Janumet currently sells
about $1.1 billion worldwide). We do not think Merck would be
willing to pay Depomed $10 million upfront and then 2% of a
potential blockbuster unless the IP was solid.
We continue to be positive on the Depomed story. As outlined in
this report (DEPO/Jan2012), we see the shares fairly-valued at $9.
This includes $1.75 per share in cash, $2.75 per share in net
present value of royalties on Glumetza, $4.00 per share in value
for Gralise, and $0.50 for the acuform technology. We would be
buyers of the stock on today's pullback.
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